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Why everyone should know some economics

As a child, I was a billionaire. I used to own a few of these.

This is my welcome letter for my first and second year economics students in which I explain why everyone should know some economics.

For many of you, this is the first time you are studying economics in a systematic way, and the most important question at the back of your mind is probably this: “Why am I doing this?” There are many reasons why you might be taking this course, and for some of you the desire to understand economic phenomena may not be the main motivational factor. This is perfectly fine. But, when one decides to dedicate most of his life to studying economics, one usually does this because of the desire to learn. I would like to share how I became interested in economics.

Sometime in the early 1990s, I lived in the former Yugoslavia, a country torn by war and extreme economic hardships. This was also the time of one of the worst episodes of hyperinflation in human history. I remember the days when my parents would get their paycheques from their employer. People would run to the store to spend their paycheque quickly, before the prices of everything doubled the same day. If you waited for more then one day, all you could buy for your monthly salary was maybe a kilo of sugar.

I, a high schooler at the time, was quite puzzled by this situation, especially because I saw a rapid decline in people’s well-being. I wanted to know why all this mess was happening. When I turned on the TV, our politicians were repeating that they needed to keep printing more money to help the citizens keep up with the rapidly rising prices. Many of you already see that there is something fishy in this story. I did too at the time, but I couldn’t quite pinpoint the logical inconsistency in this story.
There was nothing in my high school curriculum that could help me either. I loved chemistry, physics, and math but none of those disciplines could explain inflation or why people are living so miserably in my country. I also liked art, history, sociology, and geography, but I found no explanation for our economic hardships there ether.

Only after I started studying economics, I realized its tremendous power to explain why some societies are poor while others are prosperous. I also learned that our Yugoslavian politicians in the 1990s were lying to us. It is not the rise in prices that prompted the politicians to print more money. The causality run in the opposite direction. It was the politicians’ desire to fund the failing government programs that prompted them to print more money. Once the market was flooded with new money, consumers started competing over the dwindling stock of products, which caused a surge in the prices of everything.

This is only one social issue which can be vastly clarified using the economic way of thinking. For many of you, this will be the only economics course that you will ever take. But, in your future you will be deciding on important economic matters. For example, some future politician may tell you that introducing trade restrictions will be good for Canadian economy, and he or she may ask for your support in introducing laws that restrict trade. If I can teach you how to use the economic way of thinking to determine whether this, and many other proposed economic policies, will bring the promised consequences, I consider my mission accomplished.